Monday, April 25, 2016

No Pipeline ... Kinder Morgan Pulls Out

By TOM RELIHAN
Recorder Staff
Friday, April 22, 2016
Kinder Morgan’s leadership fielded questions on the factors that led to
the company’s decision to cancel the proposed Northeast Energy Direct
pipeline from financial analysts during an earnings call this week, and
it boiled down to a lack of firm customers, regulatory hurdles, and an
unstable global energy market.
Kinder Morgan CEO Steve Kean told analysts during the call Wednesday
night that the company decided to nix the NED and another pipeline
project in Georgia to cut about $4 billion in capital spending,
according to a transcript posted on the investment news website Seeking
Alpha.
“While many of our (local distribution companies) customers did sign up,
we did not receive enough contractual commitments from electric
customers to make the project viable,” said Kean. “So, we will fulfill
our obligation to consult with our customers over the next 30 days or
so, but this project is not economic, so we’re removing it from the
backlog. In both cases, NED and Palmetto (the Georgia pipeline), based
on all the facts, we believe this is the right outcome for our
investors.”
Kean said the return on the NED project would have been less than 6 percent – a situation he described as “clearly not viable.”
“We value our New England customers and continue to believe along with
many others that additional capacity is needed in the region, but we’ll
have to look for other ways to serve some part of those needs,” he
continued. “We didn’t get there on this one and the action we’re taking
is undeniably the right call for our investors.”
Kean said a dramatic downturn in the gas and oil production sector has
hit Kinder Morgan hard. Much of the midstream gas and oil industry has
been plagued by similar woes as global commodity prices have plummeted.
Analyst says
Robert Pollin, a Distinguished Professor of Economics at the University
of Massachusetts Amherst, said that a steep drop in oil and gas prices
is being driven by the emergence of hydraulic fracturing as an
inexpensive way to extract natural gas. That, he said, has seen oil
producing companies like Saudi Arabia and others in the Organization of
Petroleum Exporting countries – or OPEC – who have the ability to slash
their prices do so in an effort to offer a cheaper product, undercutting
that new competition and driving them out of business. That can
constrain the supply.
On the demand end, the regulatory hurdles make it unclear whether the
gas that is produced will even be bought on the other end.
“No investor is going to want to invest in a project if they don’t know
they have a solid market once they’ve produced their product,” Pollin
said, of Kinder Morgan’s inability to secure demand-side customers. “If
Kinder Morgan is saying they don’t have the customers, then that’s an
issue.”
Kean also said in the call that one of the NED’s “significant
prospective customers” decided to “put their volume somewhere else, with
a significant negative impact on the project. He did not specify who
that customer was.
That, and a growing opposition movement toward the use of fossil fuels
as an energy source is growing worldwide, Pollin said, which could put
pressure on investors to abandon oil and gas companies. That sentiment,
in part, drove much of the grassroots opposition spawned by the proposed
project.
“We are a lot better off with that $3.1 billion back in our pockets and
being put to some other use. The project wasn’t going to produce the
return that would be required to make it viable, because again the
contracts weren’t there,” Kean said. “We’re better off having that money
back.”
He expressed optimism that gas would grow moving forward, though.
“I think we’ll continue to see growth in natural gas and natural gas
liquids exports,” he said. “And those long-term trends are good for
North American energy midstream companies like Kinder Morgan.”
Kean noted the Palmetto pipeline was sunk by the Georgia Legislature
preventing the company from getting eminent domain powers and other
state permits. He said joint-venture projects elsewhere are going well.
Tennessee Gas Pipeline Co., the Kinder Morgan subsidiary that would have
built the NED, has sued the state over Article 97 of the Massachusetts
Constitution, which requires a legislative override to remove
conservation restrictions on some of the land the company’s Connecticut
Expansion project is set to cross in Sandisfield. The NED project would
also likely have encountered a sizeable portion of that land along its
own route.
Tom Martin, the company’s vice president for natural gas pipelines, said
the company will continue to pursue alternatives for getting more gas
into the Northeast, but that’ll likely need to be done through local
distribution companies, and on a smaller scale.
Meanwhile, Berkshire Gas plans to maintain a moratorium on any new
natural gas service hook-ups into the foreseeable future, citing a lack
of alternative ways to obtain the gas it needs to maintain system
pressure.
“There is need both in the near term and ultimately we believe in the
long term in the region, but we’ll just try to scale up with that demand
as it develops,” Martin told analysts.
“But,” Kean told analysts, “there is a regulatory process that has to
get sorted out up there for how the power part of the business is going
to procure the needs for their generating assets.”
Kinder Morgan cited those regulatory hurdles, which prevented power
generators from signing on to the project, as a significant factor in
the decision to suspend the NED.
“That’s been a work in progress and who knows when they ultimately get
that resolved,” Kean said. “So there’s definitely less producer push
activity for anything large. And we think on the demand side
infrastructure is still needed, but they’ve got to come to terms with
how it can get contracted for.”

1 comment:

House Bill 1660 will be heard at 10 am (arrive at 9:30) tomorrow April 28th. Here is Senator Sanborn’s message.

The session starts at 10 am and I expect the Bill to be debated about 10:30-10:45.

This is the bill about eminent domain. It has changed a bit but it is still an important bill that needs to be passed.

From Senator Sanborn : I think it is very important to see if we can get a great turn out for the debate and show the Senate members, many of whom have previously not weighed in on the issue, just how strongly we feel about a positive vote on this issue.I might suggest that anyone who can, show up around 9:30am to make sure they can get a seat as our gallery is not as big as the House gallery.

PLEASE TRY TO ATTEND. Wear your NO PIPELINE BADGE and or your T-SHIRT if you have one.

Welcome to our site

Please feel free to leave your comments or questions. We ask that you post responsibly, the use of foul language and any personal attacks will not be tolerated. If you have a town matter you'd like to discuss drop us an email and we will post the subject and open it for discussion for you.

WinchesterInformer@gmail.com

Disclaimer

This web site has no affiliation, in any official or unofficial capacity, with the Town of Winchester. Meeting times listed are for information only and do not constitute legal meeting notices. Comments are the opinions of the person(s) posting and not necessarily those of the WinchesterInformer. We reserve the right to edit or remove offensive comments.

Upcoming Meetings & Events ..

About Me

I am part of a group of Winchester citizens completely opposed to dirty and hazardous businesses, like asphalt and wood burning plants wanting to come into town at the expense of our quality of life. I am concerned about preserving the rural character of Winchester. These types of development have no benefits for Winchester citizens and they create many health hazards and will cause the destruction of green space. Our Winchester is known for its precious natural resources; dramatic rocky slopes, unique wetlands and abundant wildlife. I feel there are many questions concerning these proposed projects that outweigh any benefits. The increase in traffic along existing streets and noise and air pollution would be very significant. I am also concerned that the town infrastructure cannot cope with the problems these types of businesses will demand. Furthermore, I am very discouraged with the Planning Board and Zoning Boards and feel they have been negligent in their duties to protect neighboring residents from health hazards and safety issues that will surely arise and affect the lives and livelihoods of many citizens.